This article is intended for agent use only. Please visit silacins.com and Indices.Barclays/Atlas5 to understand the risks associated with the Teton Fixed Index Annuity and the Barclays Atlas index.
At the beginning of 2020, SILAC started issuing policies with the Barclays Atlas 5 Index. Atlas is a new addition to their Teton™ Fixed Index Annuity (FIA) product line.
For a lot of agents, the thought of a new index is pretty daunting. (If you're already lost, don't worry – we'll explain it all shortly.)
Carrie Freeburg, ASA, MAAA, VP of Annuity Products, and Dan Acker, President & Chief Marketing Officer, sat down with me to go through all the nitty-gritty details of Barclays Atlas 5. If you're feeling intimidated, here's the good news: it sounds more complicated than it really is.
If you're a Fixed Index Annuity guru, you're going to pick this up with no problem. And if you're just starting to dabble into FIAs, you'll get it – just stick with me.
We're going to move from simple to complex, so feel free to jump ahead at any time depending on your experience level:
The SILAC Teton™ Fixed Index Annuity is quite possibly the simplest FIA to understand. SILAC did an incredible job creating a product with a sole focus on the accumulation and growth of retirement assets. You don't get bogged down by tons of bells and whistles.
The Teton™ series is a Fixed Index Annuity that's tied to the S&P 500. As we'll discuss today, a new index is now available called Barclays Atlas 5.
With Teton™, clients can choose a 7, 10, or 14-year term. Here are several features that stand out about this product:
There are no fees for any of these perks.
With a FIA, your client cannot lose money unless the product has fees baked in, and the Teton™ line has NO fees. The worst your client can do is stay the same. When the market tanks, they remain at 0%, and when the market does excellent, their gains are limited.
How their gains are limited will depend on which index crediting strategy they choose. You can learn all the basics about the annual point-to-point, monthly average, and more here: What is the SILAC Teton™ Fixed Index Annuity, and How Does It Work?
The Teton product line has two series:
These products are identical except Teton Bonus has a premium bonus, lower rates, and lower indexed crediting adjustments than Teton.
The addition of the Barclays Atlas 5 index is intriguing, but let's start with the basics – what exactly is an index?
A stock market index measures a stock market or a subset of the market. It helps investors compare current price levels with past prices to calculate market performance.
The most common US stock market indices are the S&P 500, the NASDAQ, and the Dow Jones Industrial Average. You can't invest directly into an index, but by investing in index funds that allow you to track performance, you can make money when the index goes up.
Stock market indices give us a sense of how the market is doing without having to look at every individual stock. For example, the S&P 500 measures the performance of 500 large companies listed on stock exchanges in the US, such as Microsoft, Apple, Amazon.com, and Facebook.
Before the introduction of Atlas, the Teton product line exclusively used the S&P 500 for index crediting strategies. Many consider the S&P to be the benchmark of the overall market.
As of April 22, 2020, the S&P has an average 10-year annual return of 8.76% (S&P Dow Jones Indices).
When you start a Fixed Index Annuity contract, you're not actively investing in the stock market. Instead, the gains you make are based on how the index – in this case, the S&P 500 – performs.
Atlas, or the Barclays Atlas 5 Index, is a brand new global index that Barclays created for SILAC. No one else can offer it.
Note: You should review Atlas features, risks, and considerations at Indices.Barclays/Atlas and select “US Retail Investors."
Barclays, a multinational investment bank, is the designer of this index. SILAC partnered with Barclays on this index because they do their homework.
All Barclays’ indices are compliant with IOSCO principles for benchmark indices. These principles seek to protect investors by ensuring fairness, transparency and cost effectiveness.
Moreover, Barclays dedicates extensive Research and Development resources when designing indices to conclude there is a fundamental rationale for performance and an academic backing behind the index construct.
Barclays has been offering financial expertise for over 325 years. They operate in over 40 countries and employ over 83,000 people. Barclays is recognized as a global leader in indices. Over 50 professionals provide clients with dedicated trading, structuring, and risk management expertise.
The Teton product line already uses the S&P 500, so why bring in a new index? The short answer is the S&P 500 is specific to the United States – what about the rest of the world?
The United States economy only represents 24% of the global economy or the GDP. When we only use the S&P 500, we're missing 76% of what's happening in the rest of the world. SILAC wanted to give clients the option to participate in the global economy – not just what's going on in our neck of the woods.
Atlas is a global index with 11 global equities and bonds:
When we look at the emerging markets, did you know that China falls under that category? China has the world's second-largest economy, and this is where we can capture what's going on there.
The bonds are also a critical inclusion, because they provide diversification to equities.
Historically, when equity markets unperformed, Government Bonds have acted as a safer investment and have therefore appreciated. That may not always be the case in the future.
Atlas has the ability to reposition its allocation between bonds and equities, daily, across the selected regions, as well as increase or decrease its overall exposure. That means Atlas can, in theory, be fully uninvested if it deems the risk / reward is not there.
The addition of Atlas has not changed anything about the Teton product. Everything is the same – they've just added another piece to the accumulation story.
By giving clients the option to choose Atlas, they have the chance to penetrate about 90% of the world's economy. Before Atlas, they could only participate in about 24% of it.
Remember: while interest may be tied to the performance of the underlying index, your client is never actually invested in the index itself.
There are two brand new crediting strategies for the Atlas index.
Please note that either the Annual Point-to-Point with Spread or Boost is available on a product – not both. In other words, you can't pick the spread and the boost; it's either/or.
All strategies will never earn less than 0%. You can always tell your clients that when they put their money in the Teton FIA, they cannot lose it. The absolute worst they can do is stay the same.
Here's a quick look at all of the index crediting strategies:
The interest rates are bound to fluctuate, especially as we make our way through this COVID-19 pandemic. However, you'll notice that the Atlas Annual P2P participation rate is substantially higher than the S&P's.
The Atlas PR is higher because it's a volatility control index, meaning it should perform more consistently than the S&P 500, but will likely underperform it in strong rallies. SILAC can afford more of the index than they can of the S&P 500, because a more predictable – yet lower than expected return – may mean a more affordable option (or crediting strategy).
The S&P 500 is a very volatile index – meaning that it can have large swings up and large swings down. Atlas is a volatility-controlled index, so the swings up or down are smaller and more controlled. That also means that the Atlas index is likely to have lower but steadier returns.
Since the S&P 500 is more volatile, participation rates cost more on the S&P 500, leading to lower participation rates compared to what can be offered with the Atlas Index.
The Annual Point-to-Point with Participation Rate, or P2P PR, is an indexed crediting strategy that credits a portion of the growth in the underlying index. This portion of growth is the participation rate.
If the index increases over the policy year, then you will earn the percentage change of the index multiplied by the participation rate. If the underlying index decreases over the policy year, then you will receive an interest credit of 0%. They will never earn less than 0%.
That can be quite a bit to take in, so here are some examples to help. For some easy math, let's say the theoretical participation rate is 50%.
If the market goes up 20% that year, your client gets 10%. If the market goes up 4% that year, your client gets 2%. If the market goes down 5%, your client gets 0%.
As of April 2020, the Barclays Atlas 5 Annual P2P PR on the Teton 10 is 115%. If the Atlas index goes up 6%, your client gets 6.9%. If it goes up 4%, your client gets 4.6%. If it goes down 5%, your client gets 0%.
Quick FAQ: How in the world can a participation rate be more than 100%?
Quick answer: SILAC is indifferent to how the index performs. Each year, the client can put money in the fixed account or allocate to an indexed crediting strategy. SILAC simply takes the fixed rate (option budget) the client would have earned and buys an option on the index the client chooses.
Because the Atlas index is less volatile, SILAC's option budget can provide all of the Atlas index and more. That does not mean SILAC lost money. They simply passed the fixed rate/option budget on to the investment bank to buy the option.
A few nitty-gritty details you should know:
Annual Point-to-Point with Spread, or P2P Spread, is an indexed crediting strategy that credits the growth in the underlying index less a spread.
If the growth less the spread is positive for the policy year, then you will earn the growth less the spread. The spread is the amount subtracted from the percentage change of the index. If the percentage change less the spread is negative for the policy year, then you will earn an interest credit of 0%. They will never earn less than 0%.
For example, let's say the spread is 2%. If the index goes up 6%, your client gets 4%. If the index goes up 3%, your client gets 1%. If the index goes down 5%, your client gets 0%.
With a 2% spread, we're always subtracting 2% from however the index performed.
As of April 2020, the Barclays Atlas 5 Annual P2P Spread on Teton 7 is 0%. If the index goes up 7%, your client gets 7%. If the market goes up 4%, your client gets 4%. If the market goes down 5%, your client gets 0%.
Since the spread is 0%, we're subtracting 0%. I wish math were always that easy!
Annual Point-to-Point with Boost is an indexed crediting strategy that credits the growth in the underlying index plus a boost. If the growth plus the boost is positive for the policy year, then you will earn the growth plus the boost. The boost is the amount added to the percentage change of the index.
Since the boost is added to the index growth, your client may earn a positive interest credit even if the underlying index suffered a slight loss for the year. If the percentage change plus the boost is negative for the policy year, your client will earn an interest credit of 0%. They will never earn less than 0%.
So let's say the boost is 2%. If the index went up 5% for the year, your client would get 7%. If the index went down -1% for the year, your client would actually get 1%. If the index went down 5% for the year, your client would get 0%.
As of April 2020, the Barclays Atlas 5 Annual P2P Boost on Teton 10 is 0.5%. If the market goes up 5%, your client gets 5.5%. If the market stays the same at 0%, your client gets 0.5%. If the market goes down 5%, your client gets 0%.
Quick note: Annual Point-to-Point with Spread/Boost is referred to as Annual Point-to-Point with Spread in the policy form. The boost is essentially a spread that increases the interest credit.
There are two main reasons to encourage your clients to allocate some funds to the Atlas:
Diversification is never a bad thing, and like we pointed out before, the S&P 500 only accounts for 24% of the global economy. When big gains are happening overseas, the Atlas index allows your clients to potentially participate in them.
The best way to visualize the potential of Atlas is by looking at its recent performance. Here's a look at the performance of the S&P 500 and Atlas through this coronavirus pandemic:
We mentioned before that the Atlas index is less volatile – there aren't as many big highs and lows. You can see that volatility control here as the S&P 500 dips way down, yet the Atlas is staying fairly steady.
Let's look at how the Atlas crediting strategies would have performed for the Teton 14 during this coronavirus pandemic.
It's nice to see how the boost allows clients to make interest when the index is negative.
As you saw earlier, between the S&P 500 and Atlas, there are now eight indexing strategies, and all the choices can somewhat paralyze clients. Psychologists and researchers call this decision fatigue. It's why former President Obama and Mark Zuckerberg wear the same outfit every day – it cuts down on the decisions they have to make.
Instead of putting all of these strategies in front of your client and saying, "here – choose," you might come up with your own set of recommendations. Your own strategy recipe, so to speak.
If you're looking at Carrie or Dan for some guidance, they tell it like it is: "We don't know which strategy is going to be the best in any given year," Carrie explains.
In reality, different strategies are going to perform better in different years. Check out this chart showing how the Teton 14 would have performed based on a sampling of four different indexing strategies over the past 10 years:
Different approaches shine in different years, and that brings up a critical piece of advice from Carrie:
"Pick the strategy you like and stick with it! Agents often change strategies after the first year, and the other strategies do better. Don't follow the dance – pick your strategy and stick with it long-term.
I see people keep changing things, and they're always a year behind, and their client doesn't do as well."
When picking your long-term play, Carrie recommends combining strategies to benefit from what's going on in the US and globally.
For example, if you're 65-70 years old, you might consider allocating your funds in a few places:
Carrie says it's always great to do some in the S&P and some in the Atlas. "The Atlas is a new index – it has been live since December 6, 2019 – so it's hard to tell a client to put all their money in it. We know what the S&P 500 has done, so Atlas is a great complement to that," she explains.
When we look at that chart of performance over the last 10 years, you'll notice that each strategy has years when the client would have earned 0%.
The S&P 500 Annual Point-to-Point with Cap has three years where the client didn't make anything. You'll notice the monthly point-to-point with cap beside it had four zero years, and that's because that strategy is a more volatile one.
The Atlas, which is a volatility control index, has fewer 0% years, but it also underperformed the S&P in strong equity rallies.
Prepare your client for that, because there will be zero years. We want to focus on how your client does over the long-term. With all of these strategy examples, a theoretical client would have done better than a typical 3-4% MYGA, and keep in mind – both of these annuity types are 100% safe!
With the Teton FIA product line, your client will never lose money. It's a great opportunity.
A great part of the Atlas index is it can move every day depending on what's going on in the world. During COVID-19, Atlas has been able to move funds around depending on which parts of the world are being hit. Making adjustments quickly helps minimize losses.
The S&P 500, on the other hand, rebalances once a quarter. It doesn't have the advantage of being able to react quickly.
We've seen Atlas make movements within days and weeks as it adjusts quickly for recent trends.
Take a look at the following progressions. We see the Barclays index reposition between regions, both in bonds and equities, and increase or decrease its overall exposure.
These quick adjustments during the pandemic help illustrate the benefits of being able to rebalance often – something the S&P 500 can't do.
Carrie explains that right now is a great time to get into a Fixed Index Annuity. There's going to be a lot of gains in the world hitting at different times. Atlas, the new global index available exclusively from SILAC, will help your clients capture potential gains in Europe, Asia, and the US when they occur.
"I'm really excited about both indices. They're going to help our clients participate in the full global recovery from this pandemic," Carrie says.
SILAC has crafted several marketing materials you can find in the agent portal.
Also, each month, SILAC does a webinar every Monday at 10:30 am CT. SILAC dedicates at least one webinar per month to Atlas, so be sure to keep an eye out for that.
If you have any questions about the Teton series or the addition of Atlas, please get in touch – I would love to help out however I can. Give us a call at 888-780-7676 and ask for Kirk.
Dan Acker is the President & Chief Marketing Officer at SILAC. Acker has an extensive history working in the insurance industry and is focused on offering innovative insurance and annuity products to the senior market.
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Carrie Freeburg, ASA, MAAA is the VP of Annuity Products at SILAC. Freeburg has been involved in the insurance industry since 2003. She's passionate about creating and offering senior annuity products that are clean and simple with no complicated distractions.
Disclaimers: Barclays Capital Inc. and its affiliates (“Barclays”) is not the issuer or producer of the Products referenced herein and Barclays has no responsibilities, obligations or duties to purchasers in these Products. TheBarclays Atlas 5 Index (the “Index”) is a trademarks owned by Barclays Bank PLC and licensed for use by SILAC Life & Casualty and Barclays makes no representation regarding the advisability of the Product(s) or use of the Index or any data included therein. Barclays shall not be liable in any way to the issuer or to other third parties in respect of the use or accuracy of the Index or any data included therein or in connection with the administration, marketing, purchasing or performance of the Product(s).
Barclays’ only relationship to SILAC is the licensing of the Index which is determined, composed and calculated by Barclays without regard to SILAC or the Product(s). While SILAC may for itself execute transaction(s) with Barclays in or relating to the Index in connection with the Product(s), purchasers acquire the Product(s) from SILAC and purchasers neither acquire any interest in the Index nor enter into any relationship of any kind whatsoever with Barclays upon making a purchase of the Product(s). The Product(s) are not sponsored, endorsed, sold or promoted by Barclays andBarclays makes no representation regarding the advisability of the Product(s)or use of the Index or any data included therein. Barclays shall not be liable in any way to the issuer or to other third parties in respect of the use or accuracy of the Index or any data included therein or in connection with the administration, marketing, purchasing or performance of the Product(s).
